Prime Minister Mahinda Rajapaksa with President Gotabaya Rajapaksa
By: Dinesh Weerakkody
COVID-19 has triggered the deepest global recession in decades. While the ultimate outcome is still uncertain, the pandemic will result in economic contractions across the vast majority of emerging markets and developing economies. It will also do lasting damage to Human Resource productivity and potential manufacturing output.
The immediate policy priorities are to alleviate human suffering and reduce the near-term economic losses. Once the crisis becomes less intense, it will be necessary to reaffirm a credible commitment to long-term policies and undertake the reforms necessary to solidify the long-term prospects.
Overall in 2021, the big lockdown of 2020 of much of the economy to fight COVID-19 is expected to raise prices and with supply chains strangled, incomes are very likely to stay depressed through 2021.
GDP in South Asia is projected to contract by 2.7% in 2020 because pandemic mitigation measures hinder consumption and services activity and also because of the uncertainty about the future course of private investment. Therefore growth in the South Asian region is expected to decelerate notably due to pandemic-related disruptions including mitigation measures and sharp falls in exports, FDI and worker remittance inflows.
Spending in South Asia also has taken a deep dive from August to October. And on top of that a loss of household incomes, a number of countries have reinstated limitations on movement and activities that has impacted retail businesses, as COVID-19 outbreaks continue into the holiday season.
The private sector is fully aware of the challenging environment Sri Lanka is currently facing, therefore the country understands the need for pragmatic policy directions to revive the economy and the business climate in Sri Lanka. The policies must be long term, targeting stable growth for post-COVID recovery.
The Government has to fully focus on improving the international trading environment in Sri Lanka, a greater focus should be on expanding the export industry, given the urgency to boost our foreign exchange reserves. The Budget 2021, therefore has to be carefully structured to target a realistic budget deficit, while gradually reopening the trading environment.
The current restrictions on imports for the manufacturing sector could impact the exports and the domestic economy as well as for intermediaries in the medium term. Therefore a structured relaxation of imports is required.
Another crucial area is knowledge and skills development; the Government needs to take decisive steps to upskill and re-skill our workforce to build a strong talent pool, whist improving the efficiency of the bureaucracy to attract both foreign and domestic investments.
In the public imagination, the arrival of a good vaccine is looking very real: It’s now like a Bollywood ending to the grim and agonising uncertainty of everyday life. But serious health experts are discussing publicly now a new worry: that is hopes for a vaccine may be creating hyped up expectations.
The overconfident depiction by WHO and pharmaceutical companies that a vaccine is imminent and inevitable may give millions of working class people unrealistic beliefs about how soon the world can return to near normal and as a result simple health strategies may get ignored that can taper down community transmission and save lives in the short term.
Economists still assume and very hopeful that a vaccine and/or treatment will allow normal economic activity to resume in early-2021. However it will take time to deploy the vaccine and experts say the first vaccine to market is unlikely to be 100% effective, therefore economic growth and sentiment may very likely remain somewhat constrained in 2021.